The Uses and Advantages of Side Letters in the Investment Chapters in Preferential Trade Agreements

This article analyses the utility and advantages of employing side letters in the investment chapter in Preferential Trade Agreements (PTAs). Even thoughparties to a PTA often use side letters, particularly in relation to the investment chapter, the literature has paid little attention to their utility and advantages. This article develops a typology based on the three functions of the side letter (ie clarification, correction, and consensus on a new term) and explains the detailed letter exchange procedure of the letter exchange. It then discusses the three advantages (ie cost efficiency, flexibility, and transparency) of using side letter.